BHUMI SUDHAR NIGAM Vs. CIT

JUDGEMENT

(1.) BOTH the appeals filed under section 260A of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') by U.P Bhumi Sudhar Nigam, Lucknow (hereinafter referred to as the 'Nigam') raise common substantial question of law.

(2.) INCOME Tax Appeal No. 3 of 1999 relates to the assessment year 1995 -96 whereas Income Tax Appeal No. 4 of 1999 relates to the assessment year 1994 -95. in both the appeals the following substantial questions of law with the difference in the figure of receipts have been raised : (i) Whether the Tribunal was legally correct in holding that the appellant -company is not the 'Government and its income', therefore, was not outside the provisions of Income Tax Act ? (ii) Whether on the due consideration of the true nature of receipts amounting to Rs. 47,23,315 and the attendant facts and circumstances of the case, the Tribunal was legally correct in affirming taxability thereof, as income, in the case of assessee? (iii) Whether there was any material for the Tribunal to come to the conclusion that interest received in relation to the funds which got deployed with Scheduled /Nationalised banks remained lying with the appellant Nigam, and there was no diversion of the same, at the very source, in favour of the State Government ? (iv) Whether the findings about the taxability of receipts amounting to Rs. 47,23,315 are not vitiated in law as having been arrived at without giving due consideration of the relevant materials /information, particularly to the effect that (a) the amount in question stood credited in a separate account classified as 'Interest payable to Government'; (b) the State Government never gave up its claim for the said sum; (c) the Nigam at its part had Already taken effect steps for making over the said sum as stood comprised in the over all credit balance under the head 'lnterest payable to State Government' with such governance; and (d) other relevant/ attendant facts and circumstances of the case. (e) Whether the Tribunal was legally correct in not accepting the alternative plea of the appellant, that it carried corresponding liability towards the State Government, which in any case was liable to be allowed, as a sequel to the substance of addition of Rs. 47,23,315 (vi) Whether the Tribunal was legally correct in holding that the amount in question did not partake the character of grants -in -aid given by the State Government, and the same was straightaway taxable in the hands of the appellant

(3.) BRIEFLY stated the facts giving rise to the present appeals are as follows: According to the appellant, the Nigam is a Company wholly owned by the Government of Uttar Pradesh. There was its various functionaries as shareholders which had come into existence for carrying out the following: '1. To undertake, assist, aid, finance, execute and promote measures for land development, conservation and improvement of soil and water resources such as: (a) Reclamation of land including reclamation of saline and alkaline soils and revine and gullied areas. (b) Farm drainage, both surface and sub -surface. (c) Prevention of mitigation of soil erosion. (d) Protection of land against damage by floods or drought. (f) Water Management including conservation irrigation, use of sprinkers gated pipes and water harvesting. 2. To carry on the business of farmers, graziers, planters, contractors for the construction of works and any other operations or business which may seem calculated directly or indirectly to develop the land for agricultural purposes or purposes akin to agriculture. 3. The company is thus formed as a company for promoting rural development through land reclamation activities in the State of Uttar Pradesh being useful object of general public utility and intends to apply its profits, if any or other income in promoting its objects and to prohibit distribution of any dividends to its members.' as its main objects as contained in the memorandum of association of the Nigam. The Government of U.P. had been giving grant -in -aid to the Nigam for implementation of various specific projects. According to the appellant the grants were with the stipulations that the sum so provided by the State Government should be placed in personal ledger account with the treasury and in case the funds are placed with commercial Banks in any form, then the interest earned on such funds shall belong to the Government itself. The State Government has been issuing instruction/ notification from time to time in order to regulate the said stipulations. During the assessment years 1994 -95 and 1995 -96 the Nigam had received a sum of Rs. 71,96,225 and Rs. 47,23,315 respectively towards the interest accrued/ received on fixed deposits made by it. Before the assessing officer it was contended on behalf of the Nigam that interest on F.D. Rs., which had not been shown in the income of the Nigam but in the footnote of the balance sheet that it is income of the State Government, is not the income earned by the Nigam but it belonged to the State Government and, therefore, on the principle of diversion of income by over -riding title the Nigam claimed that it was not its income. The Deputy CIT of Income Tax, Special Range, III, Lucknow while framing the assessment order in each of the two years did not accept the plea of the Nigam and held it to be its income and accordingly imposed tax thereon. Feeling aggrieved the Nigam preferred separate appeals before the CIT(A), Lucknow who has held that the interest accrued to the Nigam on funds kept in Banks and interest payable is revenue receipt. He upheld the action of the assessing officer in treating the interest payable as taxable receipt. Feeling aggrieved the Nigam preferred separate appeals before the Income Tax Appellate Tribunal, Allahabad. The Tribunal by its common order has dismissed the appeals.